2020: The Year of the Consumer Convenience Hangover

And for consumer-facing CDOs, the rules of engagement have forever changed.

2019 has undoubtedly been a banner year for spoiling consumers with convenience. Satiating your desires are a swipe away for the price of your personal data.

This exchange has also changed how consumers value offerings. Price and features are no longer triggers. And incumbents can no longer hide behind company size, fiscal strength, and market reach.

Instead, connected consumers are becoming bolder in choosing smaller brands that focus on convenience, personalization, social values, cutting purchasing anxiety with personalized recommendations, and making them part of digital tribes.  

Convenience Revolution

Convenience is nothing new in business development. But its consumer definition has certainly changed with data availability.

“Convenience used to be about mass distribution. And that was why many big brands were successful in years past. But the difference now is that consumers have changed and big brands have not kept up with the new definition,” said Anjali Lai, senior analyst, Forrester.

Making your product ubiquitous is no longer the game-changer; anticipating consumer desires and delivering what they need is.

"Convenience is now about brands anticipating consumers' needs based on their specific desires," Lai said.

One segment of the market that has latched onto this convenience mantra in a praying mantis death grip is direct-to-consumer (D2C).

“We are typically looking at brands that mostly have launched in the past 10 years that proposed to cut out the middlemen and deliver value to the consumer,” Lai described.

They are brands with vertically-integrated supply chains.

Sounds like Dell? You are not far from the truth. But the availability of data and consumers' increasing comfortability with purchasing online have now allowed any ambitious startup with the right global promise, emotion-evoking founder's story, and a branded customer experience to be successful quickly. Well-known brands include Warby Parker, Dollar Shave Club, Casper, Quip, and The Honest Company

D2Cs are also redefining how brands listen to their consumers. “For example, M.Gemi built their company around the promise of the consumer experience. Their entire executive team sits with the customer service team to listen to conversations with consumers in real-time,” said Lai.

Big brands are taking notice. For example, Nike is hoping to grow its D2C venture to USD 16 billion by 2020.

A receptive audience, cult-like following, no middlemen (or platform), and a suitcase of VC cash to burn through. So what could go wrong for D2Cs?

WeWork.

WeWork Effect

WeWork, which is now the We Company, is not strictly a D2C outfit. But its promises were similar: convenience, service quality, and a trusted brand. It was the McDonald's of office spaces, with the same real estate ambitions.

It was not shocking that Adam Neumann used WeWork's meteoric rise to enrich himself and his family while globetrotting in a private jet. The questions that the company's S-1 filing raised -- governance, the billion-dollar losses, the hiring practices of Neumann's wife, shareholder structure, leasing Neumann's partially-owned office spaces, and even the "We" brand to the company  -- were not the clincher either. Neither was the Neumann's USD 1.7 billion exit package, while company employees lamented their losses.

What shocked the VC and private equity world is that it happened to Masayoshi Son, one of the world's most successful investors.

Suddenly, burning cash for mindshare and market share was not a good thing. And it is the reality that D2C companies will be waking up to in 2020.

The Aftermath

In the new year, D2C companies will need more cash. Lai noted that it is needed to overcome D2C’s biggest problem: scalability.

It is alright if you are an upstart, with a lean org chart, a bestseller founding story, and have legions of top-notch employees with disruption in their minds. But as a global company, you need diverse talent, specialists and investments to navigate the subtle nuances of different relationships.

“Some brands are going to emerge and really change the way business is done. But others will fizzle out,” said Lai.

She noted that the larger incumbents will also start acquiring these companies. It offers other players, like retail platform players or non-retail players, a route to get into the retail game quickly.

Meanwhile, D2C companies will need to embrace traditional practices to sustain their growth and mindshare.

“You already see that in marketing. Many start with social media marketing, but now many are moving into TV and other traditional forms of marketing,” said Lai.

Whether D2C growth stagnates, the bubble bursts or these companies become cautionary business stories, one thing is for sure: the rules of consumerism have changed forever.

“Why do consumers consider these brands more convenient than other brands in the age of Amazon? Why are these brands considered to have good quality when consumers have not even engaged with them yet? So, the definition of convenience and trust has changed,” said Lai.